Money Market Can Cope With Big Bond Redemption

Indias money market has enough cash to meet a multi-billion dollar bond redemption next month, but central bank moves to slow the rupees rise will erode the hefty surplus seen in recent months, bankers said.

State Bank of India (SBI), the countrys largest bank, needs about Rs 250 billion to repay $5.5 billion of bonds maturing on October 1.

That is unlikely to dent rupee supply, however, because central bank forward contracts maturing at the end of September will inject some Rs 200 billion into the market.

SBI plans to buy the dollars the central bank will receive when those forward contracts mature to meet 80 per cent of its redemption, a banking source said.

The forward transactions will result in a substantial amount of rupee liquidity being distributed among several banks, said the banker, who declined to be named.

The surplus cash in the market is enough to take care of the remaining outflow.

SBI will buy the remaining 20 per cent of dollars needed for the redemption, or about $1 billion, from the central banks reserves, now at a record $87.4 billion.

That will lead to a net outflow from the money market of about Rs 50 billion. Cash surpluses in the market, as indicated by the amount parked in daily repos, have averaged a much higher Rs 208 billion this month.

SBI issued the bonds in 1998 on behalf of the federal government, converting the dollars into rupees to shore up the nations reserves after its nuclear tests sparked sanctions by the United States and other countries.

The central bank has said it was working with SBI to minimise the impact of the redemption on the money and foreign exchange markets.